Qwest Bid Impresses Few

Shares in the telco and its would-be prey, MCI, slide in spite of a sweetened offer.
By Scott Moritz ,

Wall Street gave Qwest (Q) a thumbs-down on its latest offer to yank MCI (MCIP) away from Verizon (VZ) - Get Report.

MCI shares dropped in early trading after Qwest bumped its cash-and-stock offer for the Ashburn, Va., long-distance telco up to $26 a share.

Investors watching Qwest's latest move say they now have less confidence that MCI will drop its pending deal with Verizon.

The offer is "not good enough," said one New York hedge fund manager who has been trading in and out of Qwest and MCI.

Qwest said it would pay $10.50 a share in cash and $15.50 a share in stock for a deal with MCI worth $8.5 billion. MCI said it will review the proposal and make a decision on March 28.

Qwest's previous offer on Feb. 14 valued MCI at $24.60 a share, or $8 billion, and was apparently not enough to sway the board. MCI had said it would decide on that offer by today.

In a

fiery attack on Qwest on Wednesday, Verizon CEO Ivan Seidenberg criticized the Denver telco's appeal as "desperate," pointing to the company's declining business and heavy debts. Seidenberg also said Qwest made bogus synergy claims.

Qwest CEO Dick Notebaert defended his offer and cost savings projections in a letter to MCI's board Thursday and during an interview on

CNBC

.

Unlike Verizon, Qwest and MCI "have a very common set of assets," Notebaert said on CNBC. He said the two companies could "eliminate $1 billion" in overlapping assets by ending building leases and closing redundant facilities. Notebaert also proposes the firing of 12,000 to 15,000 workers from the combined company.

Trying to fan the regulatory flames, Notebaert said that Qwest and MCI together would create more telecom competition, not less. By contrast, he says a linkup of Verizon and MCI and

SBC

(SBC)

with

AT&T

(T) - Get Report

would take the industry "back to the days of duopoly."

Shares in all three players slipped Thursday, MCI dropping 30 cents to $23.45, Qwest losing a penny to $3.81 and Verizon sliding 2 cents to $35.32.

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